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Media Alerts - Rouse v. Wachovia Mort., FSB
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May 1, 2014
  Rouse v. Wachovia Mort., FSB
Headline: District court order reversed and remanded for lack of diversity jurisdiction, holding that under 28 U.S.C. § 1348 a national bank is only a citizen of the state in which its main office is located.

Area of Law: Federal Civil Procedure

Issue Presented: Whether, under 28 U.S.C. § 1348, a national bank is a citizen of both the state in which its principal place of business is located and the state where its main office is located as designated in the bank's articles of association.

Brief Summary: The Rouses filed suit in the Superior Court of California, based on state and federal laws, against Wells Fargo. Wells Fargo removed the case to district court, where the Rouses' complaint was dismissed with leave to amend.

The amended complaint raised only state law claims, and the district court found that because national banks are citizens of the state where (1) their principal place of business is located and (2) their main office is located as designated in their articles of association. Consequently, Wells Fargo was deemed to be a citizen of California, and the district court remanded to state superior court because the Rouses were also citizens of California.

The Ninth Circuit looked to Wachovia Bank, N.A. v. Schmidt, which held that a national bank is not a citizen of every state in which it operates a branch, but is only a citizen of the state in which its main office is located. While Wachovia did not expressly address the issue at hand, the Court in that case stated that the difference between main office and principal place of business was "scant," because they were often in the same state. According to the Ninth Circuit, Wachovia Bank, strongly suggested that a national bank's citizenship was determined only by the location of its main office, not by its principal place of business.

Additionally, the Ninth Circuit tracked the history of jurisdictional law for national banks and state-chartered corporations, finding that while jurisdictional parity had been established for state-chartered and national banks, such parity was only established with respect to federal question jurisdiction, and not with respect to diversity jurisdiction.

Further, the Ninth Circuit determined that once Congress amended the diversity citizenship of a state-chartered corporation to include its principal place of business in 1958, the absence of an express linking, as Congress had previously done in 1882, could not justify reading § 1348 to include a national bank's principal place of business as another source of citizenship.

Dissent

The dissent was critical of the majority's (1) liberal interpretation of Wachovia Bank, and (2) the determination that the policy of jurisdictional parity between national banks and state-chartered corporations did not apply with respect to citizenship established by virtue of the location of the principal place of business.

Further, the dissent addressed the policy concern of placing national banks on a superior footing in accessing federal courts - especially where the national bank is broadly identified with the state in which its principal place of business is located, and the principles of federalism are better served by allowing a state court resolve the disputes of their residents with such a national bank.

Extended Summary: The Rouses sued Wells Fargo Bank, N.A., its Wachovia Mortgage division ("Wells Fargo") and NDeX West LLC in the Superior Court of California. The complaint was based on state and federal law concerning the Rouses' home loan and deed of trust. Wells Fargo removed to district court, filed a motion to dismiss the complaint for failure to state a claim, NDeX West joined, and the district court granted the motion and dismissed the complaint with leave to amend.

In their first amended complaint, the Rouses raised only state law claims, and after an order to show cause why the Rouses' case should no be remanded to state court for lack of diversity, and the district court held that national banks are citizens of the state where: (1) their principal place of business is located, and (2) their main office is located as designated in their articles of association.

Because Wells Fargo's main office is in South Dakota, and its principal place of business is in California, and the Rouses are citizens of California, the district court remanded the case to California Superior Court for lack of jurisdiction.

The Ninth Circuit provided that Wells Fargo's citizenship, as a national bank is governed by 28 U.S.C. § 1348, and not by 28 U.S.C. § 1332, which applies to state-chartered banks and other corporations. Under 28 U.S.C. § 1348, "[a]ll national banking associations shall, for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located."

In addressing the issue, the Ninth Circuit's focus was on the word "located" in § 1348, and began with the Supreme Court's determination that "located," as used in § 1348, was ambiguous on its face, thus the Ninth Circuit had to look beyond the plain meaning of the statute and the word's ordinary meaning.

While the Supreme Court has not addressed the issue, the Ninth Circuit looked to the Court's determination under Wachovia Bank, N.A. v. Schmidt, which addressed the issue of whether a federally chartered national bank is a citizen of every state where it operates a branch in addition to the state where its main office is designated. The Court in Wachovia Bank held that a national bank is not a citizen of every state in which it operates a branch, because to hold otherwise would contravene Congress's intent to protect the right of national banks to remove cases to federal courts.

While Wachovia Bank did not address whether a national bank is a citizen of the state in which its principal place of business is located, the Court did note that the omission of any reference to a principal place of business in § 1348 was of "scant" significance because "in almost every case ... the location of a national bank's main office and of its principal place of business coincide."

Wachovia Bank, in it's holding, expressly held that a national bank is a citizen of the state in which its main office, as set forth in its articles of association, is located. Because the Court did consider the principal place of business issue, but did not expressly hold that under § 1348 a national bank's citizenship included its principal place of business, the Ninth Circuit provided that Wachovia Bank strongly suggested that a national bank's citizenship was not determined by its principal place of business.

The Eighth Circuit, in resolving this issue, held that a national bank's citizenship is limited to the state designated in its articles of association as its main office. Section 1348 embodied Congress's intent to put national and state banks of the same jurisdictional footing, however, Congress then amended § 1332 to include principal place of business, and the Eighth Circuit reasoned that if Congress intended for § 1348 to include principal place of business it would have expressly amended § 1348 to do the same.

The Ninth Circuit then reviewed the history of the jurisdictional statutes. In 1875, Congress provided for removal of national bank cases to federal court, based on the belief that suits involving national banks arose under the federal laws. However, by 1882, Congress established the principal of jurisdictional parity between state-chartered banks and national banks - ending federal question jurisdiction for national banks.

In 1887, the law provided that "[a]ll national banking associations established under the laws of the United States shall ... be deemed citizens of the States in which they are respectively located; and in such cases the circuit and district courts shall not have jurisdiction other than such as they would have in cases between individual citizens of the same state." Thus, under the 1887 amendment, jurisdictional parity was established between a national bank and individual citizens.

In 1888, Congress revised the 1887 act, by providing the federal question jurisdiction for suits involving national banks was limited to (1) suits by the United States and (2) winding up bank affairs. The 1888 revision did not provide a reference to parity between national banks and individual citizens or state-chartered banks.

In 1911, Congress provided that "all national banking associations established under the laws of the United States shall, for the purposes of all other actions against them ... be deemed citizens of the States in which they are respectively located." The Court in Herrmann v. Edwards provided that the 1991 act maintained limits on federal jurisdiction established in 1887 - (1) federal question was only available for (i) suits by the United States or (ii) for winding up a national bank's affairs, and (2) diversity jurisdiction for all other suits, in which national banks were "deemed citizens of the states in which they are respectively located." The Ninth Circuit determined that to the extent that the 1911 established any principal of jurisdictional parity, it referred only to federal question and not diversity jurisdiction.

Finally, in the 1948 act, Congress provided that "[a]ll national banking associations shall, for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located." Again, the Ninth Circuit found no mention of jurisdictional parity in between national and state banks in the 1948 act.

In 1958, Congress revised the law of diversity citizenship for state-chartered corporations - a new provision was adopted, under which a state chartered corporation is a citizen of both (1) the state of incorporation and (2) the state of its principal place of business. The Ninth Circuit provided that even if Congress intended to link state and national banks for purposes of diversity citizenship, in 1948, state-chartered corporations were citizens of only the state in which they were incorporated, thus Congress would not have contemplated that a national bank would also be a citizen of the state in which its principal place of business was located.

Further, the Ninth Circuit determined that if Congress wanted to assure a link to state-chartered banks, it would have done so as it did in the 1882 act. In the absence of such a link, after the 1958 revision of citizenship for state-chartered corporations, Congressional intent did not tend to show that the citizenship of a national bank was based on its principal place of business, in addition to the state in which its main office is located.

As such, Wells Fargo is only a citizen of South Dakota, and complete diversity existed as against the Rouses, who are citizens of California.

Dissent

The dissent disagreed with the application of Wachovia Bank. Wachovia Bank held that a national bank is not a citizen of every state where it has any branch operations, and did provide that a national bank is only a citizen of the state designated as its main office.

The decision "places national banks on superior footing in their access to federal courts as compared to state-chartered corporations." The dissent agreed with the dissenting opinion in Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, which promoted construing Wachovia Bank in favor of reading § 1348 in light of jurisdictional parity between national banks and state corporations.

Finally, the dissent raised the policy implication of the majority's decision. Under these facts, Wells Fargo, a bank identified with California and having its principal place of business in California for more than a century, can ensure federal court diversity actions. The majority's decision precludes state courts from resolving their residents' disputes, contravenes principles of federalism.

Panel: Judges Bybee, Gould, McKeown

Date of Issued Opinion: March 27, 2014

Docket Number: 5:11-cv-00928-DMG-DTB

Decided: Reversed and Remanded

Case Alert Author: Joseph Chaparo

Author of Opinion: Judge McKeown

Case Alert Circuit Supervisor: Professor Ryan T. Williams

    Posted By: Ryan Williams @ 05/01/2014 01:37 PM     9th Circuit  

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